ACCA f6 taxation south africa 2013 jun answer

Marks 1 Mrs Rina Janse van Rensberg a The two tests are: Essentially the test for a person being ordinarily resident rests on a number of subjective factors, such as place of economic an

Answers

Fundamentals Level – Skills Module, Paper F6 (ZAF) June 2013 Answers

Note: ACCA does not require candidates to quote section numbers or other statutory or case references as part of their answers Where such references are shown below [in square brackets] they are given for information purposes only

Marks

1 Mrs Rina Janse van Rensberg

(a) The two tests are:

Essentially the test for a person being ordinarily resident rests on a number of subjective factors, such as place

of economic and family interests Case law provides the criteria that the place of ordinary residence is the place

to which a person would return from their wanderings despite absences of long or short duration 1 The physical presence test is only used where a person is not ordinarily resident during a year of assessment

It deems a person to be resident where that person has spent:

More than 91 days in South Africa in the current year of assessment; AND ½ More than 91 days in South Africa in each of the five preceding years of assessment; AND ½

In aggregate has spent more than 915 days in South Africa over the preceding five years of assessment ½ The tests do not apply where a person is deemed exclusively resident of another country by virtue of a double

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½

(b) Employees tax withheld and paid

Tablet device would not be taken into account by her employer

Mobile phone – fringe benefit arises as it is not used mainly (i.e more than

No objective evidence of percentage use and so no reduction

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Contribution to retirement annuity fund:

15% x R561,000 (being 15% of non-retirement funding

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501,000

Addnet travel allowance:

Option 1: Actual costs

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Option 2: Deemed costs

Maintenance rate (none incurred as maintenance plan exists)

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732·0 cents –––––––––––

Net subsistence allowance inclusion

No record of expenses kept, therefore use deemed rate of

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Lessmedical contribution rebate:

[R460 (member plus first dependant) + R154 (next dependant)] x 12 months (7,368) 1½

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(c) Normal tax liability

Wear & tear on tablet device (permitted for employed persons) –

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558,528 Contribution to retirement annuity fund:

15% x R558,528 (being 15% of non-retirement funding

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498,528

Investment income

Reduced by general foreign dividend exemption 25/40 x R13,000 (8,125) 4,875 ½

530,093

Lessmedical deduction:

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Addother qualifying medical expenses:

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The qualifying costs are not reduced as Rina has a disabled dependant (34,528) 1

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2 Science Co Ltd

(a) – A company, as a non-natural person, is considered to be resident for income tax purposes where it is

incorporated, formed, established or has its place of effective management in South Africa

– The tests of incorporation, formation or establishment are simple, objective, fact based tests and easily determinable from the records of the company

– The test for ‘place of effective management’ is more subjective, but is still based on an analysis of the facts related to the operations and decision-making powers within the company Essentially, the South African Revenue Service (SARS) considers the ‘day-to-day’ decision-making powers to be decisive as regards the identification of the place of effective management

– There is no definition for ‘day-to-day decision-making powers’ and so it remains a debatable point

– These tests are all overridden if the company is deemed to be exclusively resident of another country by virtue of the application of a double tax agreement

Note to marker: 1 mark for each point, maximum of 3 available for this part. 3

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Cash value of suspensive sale arrangements:

Finance charges earned: [(R2,350,000 less deposit R150,000)

[Tutorial note: The suspensive sales are instalment credit agreements

for VAT purposes As a result the VAT output is recognised on the sale

based on the cash cost There is no VAT on the finance charges as this

is a financial service and therefore an exempt supply.]

Debtors allowance

(iii) Allowance on machine to be replaced: R2,000,000 x 20% (fourth and

Recoupment:

Lesstax value (40%:2010; 20%:2011; 20%:2012;

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Capital gain or capital loss:

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100,000

Lessbase cost:

Expenditure less allowances permitted

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Recognised portion of recoupment of old machine: 40% x R2,000,000 800,000 ½ (iv) Current insurance premium (1 December 2012) provides cover

extending more than six months after the end of the year of assessment

and must be allocated to the correct period: R350,000 x 4/12 (116,667) ½ Similarly the amount incurred in the prior year would have to be spread

Reversal of prior year doubtful debts allowance: (R1,300,000 –

Bad debts written off (allowance): R170,000 – R10,000 (not

(viii) Expenditure pertaining to research and development (as defined):

& R2,000,000 technical staff salaries + R500,000 other expenditure

(ix) plus R450,000 capital expenditure = 2,950,000

Further allowance permitted (as R&D projects approved by the Minister

(x) Marketing is excluded from the scope of R&D and therefore does not

qualify for R&D specific deductions

However, the marketing expenditure is still in the production of income

and not of a capital nature and is therefore deductible in terms of the

(iii) Capital gain from deferral to be recognised: 40% x R100,000 40,000 ½

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& Sum of current year capital gains and capital losses 40,000

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(c) An estimate of taxable income must be made for the second provisional payment as the taxable income exceeds

The estimate must be at least 80% of the final tax liability to avoid any underestimate penalties 1

R

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3 Joan Ogilvy

Reduced by the recoupment

Selling price (R570,175) limited to cost (R430,000)

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Base cost:

Reduced by allowances claimed:

Small business asset or interest exclusion:

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(ii) The capital loss for the deposit forfeited (being the amount of the deposit) is disregarded as the deposit was to acquire an asset which was not to be used wholly and exclusively for business purposes 1

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(iii) The capital gain arising from the lottery winnings is to be excluded from the capital gains and capital losses

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(b) Joan Ogilvy

Betty’s Bay house donated to husband

A spousal roll-over provision will apply Joan will be deemed to dispose of the house at its base cost (yielding

Jeff will be deemed to have acquired the property on the same date as Joan, applied the same use and incurred

Jeff Ogilvy

Base cost:

Valuation date value:

20% x (Proceeds less post-valuation date exp)

Time apportioned base cost:

Time apportioned base cost:

Choose 20% of proceeds net of post-valuation date expenditure (539,000) 1

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(c) In the absence of the assumption that Jeff had sold the property with a capital intent, the short time span between the donation and disposal might indicate that Jeff had acquired the property from Joan with the intent

to sell (i.e a scheme of profit-making) and as a result the proceeds on disposal would be added to gross

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Tutorial note: It is submitted that as the property would have been acquired for no consideration but would not

be held by year end, the SARS practice of adding the item to opening stock would not apply

4 African Products and Accommodation (Pty) Ltd

(a) A branch is considered to be independent for value-added tax (VAT) purposes where:

It is separately identifiable (either by geographical location or by the nature of its activities); 1

If these conditions are met, the branch may be registered separately as a VAT vendor, but the legal entity (the company) must remain registered for VAT, irrespective of the level of its activity 1

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(i) Acquisitions from non-VAT vendors (no VAT input as no VAT charged

Acquisitions from VAT vendors (input claimed) – R500,000 x 40% x

(ii) Goods dispatched to Botswana branch – as the branch is independent,

the goods dispatched are considered an ‘export’ and as a result the

The goods dispatched to the dependent branches are not ‘supplies’ and

(iii) The Botswana branch sales are not considered supplies for the

company as the supply took place when the goods were dispatched to

(iv) First delivery vehicle is not an instalment sale agreement as the period

As the invoices are only issued each month for the amount due that

month, the VAT is only claimed as each invoice is issued/payment is

Second delivery vehicle is an instalment sale agreement VAT is based

on the cash cost (excluding finance charges) – R480,000 x 14/114

(v) Bad debts written off result in reversal of the output VAT – R80,000 x

(vi) Rentals for use of premises during the VAT period – R150,000 x

In terms of the time of supply rules, the rental service for the R20,000

payment was rendered in March and the VAT input would have been

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The VAT return must be filed by the last business day of the month following the end of the VAT period ½

Payment means that the amount must have been cleared in the SARS bank account ½

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5 Theoretical questions

(a) Governments collect taxes generally to fund its expenditure The expenditure is used for the government

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(b) Income Tax (including Donations Tax, Dividends Tax, Capital Gains Tax, etc)

Value-added Tax

Securities Transfer Tax

Transfer Duty

Estate Duty

Customs and Excise

Note to marker: A maximum of 2 may be given with each valid tax type scoring a half mark Stating taxes housed in the Income Tax Act score a maximum of 1 mark. 2

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Indirect taxes are those taxes imposed on transactions, such as value-added tax 1

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Note to marker: Half a mark is allocated to each of the taxes offered as an example This half mark is available

to other appropriate taxes besides income tax and value-added tax.

(d) Tax avoidance is the minimisation of the tax liability through legal means, for example, always choosing the most

Tax evasion is illegal and includes, for example, the non-disclosure of income in an attempt to fraudulently

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Completes or assists in completing a document to be submitted to SARS by another person in terms of a

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